IFRS 1

FIRST-TIME ADOPTION OF IFRS

1
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and Finance, CoBE, AAU. Permission must be obtained from

Objective

Understand IFRS 1 and key dates for IFRS

Identify who is considered as First Time
Adopter
Understand changes needed to implement
IFRS 1
Practice the modifications in preparing the
Opening St. of Financial positions
Understand the optional exemptions and
mandatory exceptions
Discuss the challenges of IFRS adoption

Definition of First-time
Adoption (FTA)

First set of financial statements in

which the entity makes an explicit
and
unreserved
statement
of
compliance with IFRSs:
in conformity with International
Financial Reporting Standards

Objective of IFRS 1

To ensure that an organizations first IFRS

financial statements contain high-quality
information that:

is transparent for users and comparable

over all periods presented
provides a suitable starting point for
accounting under IFRS
can be generated at a cost that does not
exceed the benefits to users

Scope of IFRS 1

IFRS 1 must be applied by an organization

in
Its first IFRS financial statements; and
Each interim financial report, if any, that
it presents under IAS 34 Interim Financial
Reporting for part of the period covered
by its first IFRS financial statements.

Key date

Who is First Time Adopter?

A first time adopter could be:
a) an entity that presented its most recent
previous statements:
(i) in accordance with national requirements- not
consistent with IFRSs in all or some respects;
(ii) in conformity with IFRSs but no explicit and
unreserved statement that they complied with
IFRSs;
(iii) containing an explicit statement of compliance
with some, but not all, IFRSs;
(v) in accordance with national requirements, with
a reconciliation of some amounts to the amounts
determined in accordance with IFRSs

Who is First Time Adopter?

b) prepared financial statements in
accordance with
IFRSs for internal
use only
c) prepared a reporting package in
accordance
with
IFRSs
for
consolidation
d) did not present financial statements
for previous periods

Who is not First time

adopter?
(a) stop presenting financial statements in
accordance with national requirements, having
previously presented them with an explicit and
unreserved statement of compliance with IFRSs;
(b) presented financial statements in the previous
year in accordance with national requirements
and those financial statements contained an
explicit and unreserved statement of compliance
with IFRSs; or

Who is not First time

adopter?
(c) presented financial statements in the
previous year that contained an explicit and
unreserved statement of compliance with
IFRSs, even if the auditors qualified their
audit report on those financial statements.
(d) IFRS 1 also does not apply to changes in
accounting policies made by an organization
that already applies IFRS IAS 8
10

IFRS 1 involves
IFRS 1 requires the retrospective application of
IFRSs as if it always applies IFRS.
Two Key Steps:
Select accounting policies based on IFRSs
in force at end of reporting period of FTA:
Prepare
at least two years financial
statements, and opening balance sheet
for the earliest year, using those policies

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Selecting
Initial
Accounting Policies

IFRS

Criteria for selecting accounting policies:

Relevance
Faithfull presentations
Many accounting policy decisions depend
on circumstances not free choice
But some are pure free choice

Table 1 Accounting Policy

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Recognition and
measurement

The opening statement of financial

position should be presented using the
same accounting policies that are used for
all periods presented in the first-time IFRS
financial statements.
These accounting policies should be
consistent with the IFRS standards that
are effective at the end of the first IFRS
reporting period.

Recognition and
measurement
Assets, liabilities and equity reported should
be measured using retrospective application of
the relevant IFRS standards.
However, there are some mandatory and
some voluntary exceptions to this general
rule. These are discussed later.
To the extent that the opening statement of
financial position measured under IFRS differ
from those measured under GAAP, the
adjustments should be recognized directly in
retained earnings.

Recognition and
measurement

IFRS 1 focuses on requirements for:

Presentation of the opening statement of
financial position (opening balance sheet) at
the date of transition
Comparative information as required
Reconciliations between previous GAAP and
IFRS, for example with respect to financial
position, financial performance, and cash flows
Other requirements and disclosures

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Recognition and
measurement

In the opening balance sheet (adjustments required to

move from US GAAP to IFRSs), an organization must
recognize all assets and liabilities whose recognition
is required by IFRS
Not recognize items as assets or liabilities if IFRS do
not permit such recognition
reclassify items that it recognized under previous
GAAP as one type of asset, liability, or component
of equity, but are a different type of asset, liability,
or component of equity under IFRS
apply IFRS in measuring all recognized assets and
liabilities

Table 2 for Adjustment needed

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Exceptions to Restatement

There are some exceptions to the

requirement to restate comparative data
using IFRSs:
Some exceptions are optional
Some exceptions are mandatory

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Optional Exceptions

Business Combinations:
May keep old GAAP. Need not restate:
Initial measurement of goodwill
Goodwill written off against equity
Carrying amounts of acquired assets and
liabilities
However,
entity may elect to restate old
business combinations back to any starting date
Must test goodwill for impairment at opening
balance sheet date

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Optional Exceptions

Property, plant and equipment:

May measure at FV. This becomes deemed

cost going forward
Also, revaluations under old GAAP can be
deemed cost

Employee benefits:

Can eliminate any deferred actuarial gains

and losses under old GAAP even if the entity
will continue to use the corridor approach in
future
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Optional Exceptions
Cumulative

foreign
translation adjustments:

currency

Any amount deferred in equity under old

GAAP can be eliminated (adjust retained
earnings)
If eliminated, gain or loss on future disposal
of the foreign operation reflects only
translation adjustments arising

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Optional Exceptions
Entity
may
designate
financial
instrument as available-for-sale or
fair-value-option
IAS 39 allows designation only on date
instrument is acquired
Need not apply IFRS 2 to share-based
payments issued

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Optional Exceptions

Full-cost oil and gas assets

Retrospective application of IFRSs for oil

and gas assets is not required. Carrying
amount under old GAAP = deemed cost

Determining whether an arrangement

contains a lease (IFRIC 4)

Determination under old GAAP need not

change even if at a date different from what
IFRIC 4 would require
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Optional Exceptions

In general IAS 1 requires comparative

information
for
all
amounts
in
financial statements and in the notes

Exemptions
for
some
comparative
information
for
financial
instruments
(including IFRS 7), insurance contracts,
extractive
industries,
and
historical
summaries

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Mandatory Exceptions

Derecognition of financial assets and liabilities: Do

not undo past derecognitions based on new information.
Hedge accounting: No new designation of hedge
accounting for hedges if not treated as hedges under old
GAAP
Estimates: Do not change previous estimates unless
there was an error
non-controlling interests
classification and measurement of financial assets
impairment of financial assets
embedded derivatives
government loans

Table 3 Exceptions
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Presentation and disclosure

Certain comparative financial statements are

required. The first-time financial statements
should include:
Three statements of financial position.
Two statements of comprehensive income
and two statements of net income, if
presented separately.
Two statements of cash flows.
Two statements of changes in equity.
Related notes.

Presentation and disclosure

Reconciliations
1. Of equity at date of transition and at end
of latest annual local GAAP statements
2. Of total comprehensive income under
old GAAP to amounts under IFRSs for
latest annual local GAAP statements
Newly recognized impairment losses
Material adjustments from old cash
flow statement to IAS 7 cash flow
statement

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Challenges in IFRS adoption

What challenges do you think you will face
while adopting IFRS
Valuation of collateral
Separating the cost of land & building
Impairment computation
Pricing of loans and advances
Debt and equity instruments